Insurance Company Fails To Observe Divorce, Pays Twice

MAY 4, 1998 VOLUME 5, NUMBER 44

Arizonans Frank Dobert and Jacqueline Dobert-Koerner were married when Mr. Dobert took out a $250,000 life insurance policy and named Ms. Koerner as his beneficiary. Three years later, the couple divorced.

In the divorce decree, Mr. Dobert was awarded the life insurance policy, and he was free to change the beneficiary. He never got around to doing anything about the policy. Two months after the divorce was final, Mr. Dobert was killed. Ms. Koerner was charged in the killing.

Nonetheless, Ms. Koerner made an application for payment of the life insurance proceeds, noting that she was still named as beneficiary. Despite being advised by the lawyer for Mr. Dobert’s brother that they should not make any distribution, the Equitable Life Assurance Society paid Ms. Koerner $250,000.

In a later proceeding, Ms. Koerner argued that she intended to transfer the life insurance proceeds into a trust for the benefit of the couple’s minor son, Scott Dobert. As it turned out, however, she had already spent over $150,000 of the proceeds.

A private fiduciary was appointed to handle Mr. Dobert’s estate, and brought an action against both Ms. Koerner and Equitable to try to recover the money for the estate (and, ultimately, for Scott Dobert). The life insurance company, for its part, argued that it had paid out the policy proceeds to the named beneficiary, and should not be held responsible for what happened afterwards.

Arizona law contains two provisions which might have affected Mr. Dobert’s life insurance contract. One section provides that a killer should not benefit from his or her own wrongful actions, and invalidates any life insurance contract (or, for that matter, any right to inherit or receive any benefit from the death of the victim) to the extent that it is payable to the killer. That section, however, might not prevent the Equitable from paying out the proceeds to Ms. Koerner, since she had not been adjudged to be the killer of Mr. Dobert at the time of the payout.

Another section of Arizona law provides that a divorce automatically invalidates each spouse’s will, insurance beneficiary designation, “payable on death” title or other provision which would transfer property to the other spouse on death. In other words, Mr. Dobert’s insurance beneficiary designation would be automatically invalidated once the divorce was final. The problem with this law, however, is that it is relatively new. In fact, it was first adopted by the Arizona legislature in 1994, after Mr. Dobert took out his Equitable policy but before the divorce was final. The Equitable argued that the legislature could not change the relationship of the parties after they had already entered into a life insurance contract.

The judge presiding over Mr. Dobert’s probate disagreed, and ordered the Equitable to make a payment sufficient to restore the missing insurance money. On appeal, the Arizona Court of Appeals agreed. The appellate judges noted that the law was effective before Mr. Dobert’s death, and that Ms. Koerner had no standing to challenge the effective date of the law. Then they ruled that, though Equitable had standing to challenge the law, the insurance company was not injured by the provisions, and could not object to the effect of the change in statutes.

The court also pointed out that before Equitable made any payment it had received a letter from a lawyer representing Mr. Dobert’s mother telling the insurance company that the couple had been divorced, and insisting that the insurance proceeds not be paid. Although the lawyer did not cite the statute in his letter, and did not respond to Equitable’s request for more information, the letter should have put Equitable on notice that it should investigate before distributing policy proceeds.Dobert v. Dobert-Koerner, March 5, 1998.

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